In the People’s Republic of China (with the exception of Macau & Hong Kong) PEFs are usually established as LPs. Registering PEFs in the People’s Republic of China implies a CIS which is managed by funds that have no legal instruments. Funds like this may be likened to schemes involving collective investments in transferable securities or mutual trust funds in overseas jurisdictions; however, they are aimed at equity investments.
Registering an LLP in the People’s Republic of China requires applying for a license with the State Administration for Industry and Trade. An LLP’s general partners bear unrestricted liability for the LLP’s actions; however, an LLP’s partners are only limited by their capital obligations. General partners usually act as fund managers, but you can also appoint external fund managers. LLCs are also required to apply for registration with a respective regulator.
After all the documents have been submitted, registering PEFs in the People’s Republic of China can require up to 2 weeks. Forming a fund in the PRC is considered completed after all investors conclude a memorandum of association.
As per current legislation, any Chinese PEF is required to operate under the supervision of a duly registered manager. Fund managers may also apply for registration online through AMBERS.
Registration of Investment Funds in the PRC
Under current legislation, LLPs or LLCs must keep proper records & have registered offices. Managers of funds are expected to maintain tall accounting records of their funds.
Funds are also required to have their own bank accounts in which all their assets are held. The idea behind is to keep the funds’ assets and those of funds’ managers separate.
Investing in PEFs in the PRC
As per current legislation, individuals investing in PEFs in the PRC must abide by certain standards. Foreign investors must obtain the government’s approval for participating in any PEFs in the PRC.
As per current Chinese legislation, re-domiciling instruments of private investment is impossible. Recent years have seen further tightening of regulatory control over the creation of offshore PEFs by investors from China.
To attract managers or investors from abroad, special government permissions are required.
As per current regulations, PEF managers seeking to register investment funds in the PRC are required to have a 1-year registration before being able to act in the capacity of investment advisors. To provide services like these, they should also hire 3 qualified employees having a 3-year experience in this field.
Taxation
Partnerships are not generally required to pay income taxes, with each partner paying their own taxes. As far as VAT is concerned, taxes may vary depending on a province.
Companies pay income tax as per respective legislation, while individual investors are required to pay individual income tax as per the Law on Personal Income Tax. Registering a an investment fund in the PRC involves paying VAT for each amount that qualifies as income.
Non-domestic investors that do not establish companies or offices in the PRC, including those whose income isn’t related to their local organization or office, must pay taxes. However, there may be tax incentives applicable to income derived from equity investments, including income received from domestic companies by non-domestic entities that have representative offices in the PRC.
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